Josh Cable has 17 years of experience as a writer and editor for newspapers, B2B publications and marketing organizations. His areas of expertise include U.S. manufacturing, lean/Six Sigma and workplace safety and health.

A federal judge has dealt a huge blow to a class-action lawsuit alleging that State Farm, Nationwide and other major insurers have engaged in fraud and extortion to suppress compensation rates for collision repairs.

Judge Gregory Presnell of the U.S. District Court for the Middle District of Florida granted the insurance companies’ motion to dismiss the latest version of a lawsuit filed by Pennsylvania-based Crawford’s Auto Center and North Carolina-based K&M Collision.

Presnell was not shy in expressing his opinion that the body shops’ lawsuit falls short of meeting the legal standards of the Racketeer Influenced and Corrupt Organizations (RICO) Act. As in past rulings, the judge offered no sympathy for the plight of collision repairers.

“As they did in the first amended complaint, the [body shops] have again failed to provide specifics as to the working of the alleged RICO enterprises,” Presnell wrote in his May 8 order. “The reader who slogs through all 172 pages of the second amended complaint will be left almost entirely in the dark as to what role any of the 70-plus individual defendants played or what actions any of them took in furtherance of the RICO enterprise – or in furtherance of anything else, for that matter.”

Crawford’s Auto Center and K&M Collision filed the class-action lawsuit against State Farm, Allstate, GEICO, Progressive, Farmers, Liberty Mutual and Nationwide, along with a lengthy list of the insurers’ subsidiaries and affiliates.

The shops filed the class-action lawsuit “to remedy the defendant insurers’ long-running unlawful conduct to suppress compensation to repair facilities for automotive collision repairs covered by insurance,” they assert in their latest complaint. They note that the seven insurers named in the complaint control two-thirds of the auto insurance market.

Insurers Use DRP Programs to Suppress Rates

To set the stage for their allegations, Crawford’s Auto Center and K&M Collision explain that the goal of body shops is to restore vehicles to pre-accident condition by adhering to manufacturers’ repair guidelines and specifications – while the goal of insurers is to pay as little as possible for repairs.

The insurers “have created a unilateral solution to achieve their goal of cost savings, while still maintaining the appearance of satisfying their policy obligations to pay for the loss,” the body shops assert. “Defendant insurers have instituted policy language qualifying their obligation to pay only the ‘prevailing competitive price’ for repairs (or words to that effect), which has commonly become known as the ‘prevailing rate.’

“To establish the prevailing rate, defendant insurers have each established nationwide direct repair programs, comprised of repair facilities that agree to take less in compensation for their work in exchange for a steady stream of referred work. Defendant insurers are thereby able to control and minimize their costs. The catch is that this direct repair program business model is predicated upon speed and volume, which leads to lower-quality repairs, which do not restore vehicles to pre-loss condition, and often create unsafe, dangerous vehicles. No matter, as defendants have now cemented the prevailing rate through these direct repair programs. Further, the defendant insurers exclusively work with the only three auto data companies in the U.S. to promulgate these co-called prevailing rates.”

Presnell isn’t buying any of it.

The judge, who dismissed an earlier version of the body shops’ lawsuit in 2015, points out that the allegations and arguments in the latest version “are otherwise unchanged,” and he essentially reiterates his previous ruling in favor of the insurers. He concludes that the lawsuit fails to prove its claims of fraud and extortion under the RICO Act.

“As should be obvious, by failing to state RICO claims for extortion or fraud, the plaintiffs have also failed to allege that they suffered injury to their business or property by reason of such RICO violations,” Presnell wrote. “Thus, they have again failed to state any valid RICO claims. And the failure to properly assert substantive RICO claims is also fatal to the RICO conspiracy claims here.”